Investment Strategy & Benchmarks Page Two
Chosen strategies and benchmark indices represent a reasonable and prudent compromise between long-term, multiyear return/income focus and tolerance for return volatility. o The longer duration strategies employed in certain reserves generate higher return volatility with expected higher average annual returns over multiyear periods. INVESTMENT STRATEGY The Trust Agreement and Investment Policy prescribe a Matched Funding investment strategy for specific purpose accounts including Operating, Debt Service, and Capital/Construction. Longer term strategies are permitted by the Trust Agreement for certain reserves that do not have cash flow needs. The Investment Policy’s investment objectives include longer-term total return considerations for reserves. Given that the unencumbered cash balance will be held long-term, a long-term approach is prudent and supported by the Finance and Administration Committee. The agency employs either a Matched Funding or Total Return Duration Targeted approach for certain categories of accounts. • Of the $883.3 million portfolio at the end of December 2025, $473 million of Match Funded accounts were invested in short-term securities with maturities of less than one year that precede or coincided with projected outflows. (Capital, Operating, Debt Service) • The remaining $410 million is managed for Total Return, representing long-term unrestricted reserves held in the General and M&O Reserve accounts. o Unrestricted reserves are managed for Total Return, with consideration of the volatility/return tradeoff associated with longer-term structures. o Longer duration portfolios benefit from higher average annual returns over multiyear periods and exhibit greater return volatility relative to shorter-term maturity structures. o Management does not attempt to time market rate changes; Duration Targeted portfolios maintain consistent structures. The General account is benchmarked to a composite index of 1-5-year bullet agency indices. Investment maturities are generally staggered from three-months to five-years, with an Effective Duration 1 target of approximately 3.0.
1 Effective or Option Adjusted Duration – measure used to determine bond or portfolio price sensitivity to interest rate changes.
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